Page 4: Business strategy
Strategic decisions are major decisions taken at the highest level of management in an organisation by the Chief Executive, Directors or Board members. They determine the direction of the business over future months and years. They have greater and wider-reaching consequences than the tactical decisions (such as changes to factory layout or processes) or operational decisions, such as increasing the number of staff on a product line, made by junior or middle managers. These affect the day-to-day running of the business.
Business strategies enable a business to grow and to strengthen its position in the market. If a business wants to grow it can do this by:
- organic growth - developing the business from within. This can be by either growing more or different products within its own market. Alternatively, it can be by developing new markets. This could be through various routes, for example, new products and new geographical markets, such as overseas or new distribution channels.
- Inorganic growth - joining with other businesses through take-over or merger.
Benefits of strategic decision making
Management accountants help a business make strategic decisions by:
- identifying and collecting key information
- measuring and interpreting information
- analysing information
- communicating findings
- joining with other managers to plan changes
- monitoring, measuring and controlling progress.
The tools of management accounting help support the policy of a business. Strategic, long-term decisions involve the future direction of the business. If the forecasts and decisions are right, the business will grow and succeed. But if a business makes poor decisions, it may fail.
For example, a business may decide to invest in new technology to improve the efficiency of production. If it has analysed the benefits properly, the investment will lead to growth and more profit. However, if the business has not evaluated all factors and the technology is untested, it may not give a return on investment.